Establishing a clear price strategy

Establishing a clear price strategy

Selling a commercial property is much more complex than simply ordering a sign and taking a few photos. Establishing a clear price strategy, understanding your potential buyers and marketing the property can all be daunting tasks. Here is a tip on doing what is on top of the list, if you want to sell your commercial real estate. How to establish a pricing strategy.

Comparable properties. A commercial real estate broker can run a ‘comparable properties report,’ which will indicate the price that similar buildings have sold for, the date of sale and proximity to your building. This will give you a beneficial impression of how the local market is behaving. Taking a tour of competitive buildings will provide you with hands-on market knowledge for your property. A property tour is the best way to see what your competitors are offering in terms of lease rates, amenities and location. After studying your competition first-hand, you’ll have a better idea of how your building measures up.

While sales comparables and property tours can assist, investors are more concerned about the ability of a building to generate income. This is useful because a comparable building may have more amenities and lower vacancies, but generate less income than your property.

Property valuation. It can be extremely difficult to find similar commercial properties for a true price comparison. Mixed use and large properties can make this task even more difficult, so this is why commercial property is best valued according to the building’s Net Operating Income (NOI).
The capitalization rate of your property can be used as an easy way to compare your asset with others available on the market. The capitalization rate is the rate-of-return based on the expected income the property will generate (capitalization rate = yearly income / total value).

For example, if you buy a property that will generate $130,000 per year and paid $1,000,000 for it, the capitalization rate is: 130,000/1,000,000 = 13%. Whether 13% is good or bad will depend on comparable cap rates in your area. If a majority of buildings have a 10% cap rate, you are in the lead! However, if they’re at 15%, you may have an issue.

While the capitalization rate is an easy way to compare your property against others on the market, it should not be the sole factor in your pricing strategy. Other considerations such as growth or decline of potential income, or an increase of property value should also be measured.

The art of pricing. So how do I get the highest price? Well… that can be a trick question. Let’s start off with how most people design their price strategy which is to ask over market price, to then negotiate the price down. The problem with this is, if the price is too high, buyers might not want to put an offer. If a buyer does put an offer, it is usually too low, with the same thought process of negotiating the price down. Either way, it turns into an unproductive game with unrealistic expectations and many times both sides get frustrated and walk away.

It might sound counter intuitive, but why not price the property at market and negotiate up? The free market is an interesting phenomenon. If advertised appropriately and via the right mediums our experience has been that when buyers see a property that is priced at market, they recognize the opportunity. If enough buyers find this opportunity, a demand is created. Build enough demand and guess what happens to the price? It still amazes us and our clients when we sell commercial real estate above market price and all parties, including the buyers are pleased.

If you are interested in knowing how much you can sell your commercial property for, call us today at 305-482-1118 to receive a no obligation, free market analysis.

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Trajan Investments, Inc. is founded on the old principle of “give and you shall receive”. We whole heartily believe that our knowledge, ability to connect the right people together and desire to serve brings massive value to the market place, allowing us to assist our clients to achieve their goals and prosper.
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